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Hey Reader,

I have built hundreds of financial models. For startups, for scaling companies, and for clients who have raised over $400 million combined.

After seven years running my fractional CFO firm and working with over 100 engagements, I can tell you exactly what separates the great ones from the ones that fall apart the second someone else opens them.

Most people do not realize how many mistakes they are making until something breaks. Assumptions scattered across random tabs. Three statements that do not tie together. A model that made perfect sense when they built it but is completely unreadable three months later.

So I am going to walk you through the 80 percent that actually matters.

Everything else is just details.

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The most common mistake I see is someone building a financial model like they are the only person who will ever open it.

Assumptions everywhere. No documentation. No way for anyone else to figure out what is going on. Then three months later, someone inherits the file and wants to throw it away.

Your model needs three tabs that it absolutely cannot survive without.

The first is an instructions tab. This is where you explain the entire model. Color coding, which tabs can be edited, which are read only, and links to every section. Think of it as the table of contents for your spreadsheet.

The second is a drivers tab. This is probably the most important tab in the entire model. Every single assumption lives here in one centralized place. When someone opens your file, they go to this tab to see what you are assuming and change what they need to change.

The third is an error check tab. And honestly, if your model does not have one, I do not know how you sleep at night. This tab automatically flags inconsistencies across your entire model. We are talking potentially millions of cells.

When these three tabs are set up correctly, your model becomes something other people can actually use. That is the whole point.

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Now that the structure is right, you need to fill it with forecasts that actually hold up.

The biggest mistake with revenue forecasting is people just plugging in numbers with no logic behind them. I use a framework called EPM. Existing, Pipeline, New.

Existing revenue is what you expect from current customers. Pipeline is what you expect from prospects who are actively talking to you. New is what you expect from customers you have not spoken with yet, based on your business model.

When you separate these out, you can actually have a real conversation with leadership about what is realistic and what is wishful thinking.

Now here is the one most people completely miss. Headcount.

Headcount is not just your biggest expense. It is also the hardest one to control. And most people get it wrong.

Most analysts just project gross salary and call it done. But that completely misses payroll taxes, health benefits, bonuses, and every other cost that comes with hiring someone.

Even worse, most people apply a full monthly salary for someone who starts halfway through the month.

If someone starts on the 15th, they should get half pay that month. Same thing when they leave. Once you layer in all of these details, your headcount forecast becomes accurate for the first time.

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Now you have your projections and inputs built correctly.

But here is the problem. Nobody actually looks at your detailed model. The best insights in the world are useless if no one reviews them.

That is why you need to get good at dashboards.

I recommend three that every business should have.

The first is a KPI dashboard. You select a time period, maybe this month or this quarter, and you see eight key metrics compared to the prior period, the prior year, and your budget. Simple. Clean. Not overwhelming.

The second is your comparison financial statements. This shows your income statement, balance sheet, and cash flow statement summarized and side by side. Current month compared to prior period, prior year, and budget. It gives context to every number.

The third is your summary financials. All of your historical and projected values on one view, separated by a dotted line. You can toggle between year to date, trailing twelve months, annual, or quarterly.

But building the dashboards is really just the beginning. Each month you roll forward the model with new actuals, then run your budget versus actuals report to see where you were right and where you were wrong. That is where the real financial modeling happens.

I still remember the first model I ever built. No instructions tab. No error checks. Assumptions everywhere.

My manager opened it and said, "I have no idea what I am looking at."

That was the moment I realized a model is not just about the numbers. It is about building something someone else can trust without you in the room to explain it.

That is actually why I built Model Wiz. So you start with all three tabs, the drivers, the error checks, and the dashboards already wired up. You can check it out here.

Which of the three tabs is your current model missing?

Hit reply and let me know.

Josh

Your CFO Guy

Quick note: While I love sharing my finance & accounting knowledge, remember I'm Your CFO Guy, not Your Personal CFO. Everything I share comes from my experience, but each business is unique. My content is educational, not professional advice - always consult with your own qualified advisors for decisions about your specific situation.